What Is CFD trading?
CFD is an abbreviation used for Contract for Difference. It is a type of financial derivative that allows traders to speculate on the prices of underlying securities. Traders do not have to buy underlying assets. Instead, CFD refers to a contract between a broker and investor to exchange the difference between a security’s opening and closing price.
How Do CFD Brokers Work?
Besides offering traditional trading, CFD brokers allow clients to trade CFDs across thousands of financial instruments, including forex, indices, commodities, and shares, etc. Like forex trading, traders need to sign up with a CFD broker and deposit some funds into a real CFD trading account.
Since CFDs are leveraged products that enable traders to trade on margin, the minimum deposit to open a CFD trading account with a broker can be nominal. After trading accounts are live, the CFD broker offers clients a range of assets to start placing trades.
Not to mention, CFD trading also comes with some cost of trading. A CFD broker usually makes money via spreads, commissions, interests, and hedging.
Types of CFD Brokers
There are two main types of CFD brokers, including Dealing Desks and No Dealing Desks. Let’s have a quick look at each of them.
No Dealing Desks – (ECN & STP)
No dealing desk brokers enable clients to access the interbank market directly. A no dealing desk broker further subdivides into ECN – Electronic Communication Network and STP – Straight through-processing.
No dealing desk brokers pass on the trading orders of their clients to liquidity providers without having them interrupted. In other words, no dealing brokers tend not to bear any risk for their clients. These types of brokers merely act as intermediaries connecting clients to liquidity providers.
ECN – Being a sub-category of no dealing desk brokers, ECN brokers connect to electronic trading networks, ensuring competitive execution of orders.
STP – Straight-through-processing brokers pass clients orders to liquidity provides connected with the interbank market without intervention.
Dealing Desks (Market Makers)
Dealing desk brokers are sometimes also referred to as Market Makers. Instead of providing direct access to liquidity providers, these brokers make the market themselves. In other words, market makers set the “ask” and “bid” prices of available financial instruments on their own. Unlike no dealing desk, market makers trade against the positions of their clients. Because dealing desk brokers do not trade or hedge their client’s positions with liquidity providers, they pay winning traders out of their pockets.
How to find the best CFD trading platforms?
Besides selecting your preferred type of CFD broker, It is equally crucial to sign up with a legitimate broker. Since the market is full of both good and scam brokers, you need to be careful while making your final decision. Given below are some factors that can help you find the best CFD trading platform.
Regulation of a broker might be the top factor you must confirm before opening an account with a broker. Regulated brokers abide by the rules and regulations of their respective regulatory authorities and uphold best ethical practices. In addition to keeping clients’ funds in segregated bank accounts, regulated brokers maintain enough capital to ensure high liquidity.
A good CFD trading platform comes with an easy-to-use navigation interface with all the basic and advanced trading tools. Transparent pricing, competitive cost, advanced analytics, risk management tools, and real-time price alerts are standard features of the best CFD trading platforms.
Usually, brokers offer multiple payment methods to make it easy for clients to deposit and withdraw funds. However, the lead time the broker takes to process deposit or withdrawal requests is vital. Ideally, your prospective broker must not take more than a day to accept deposits or release funds.
Best CFD Trading Platforms
Given below are some best CFD trading platforms that we’ve handpicked for you after scrutinizing dozens of brokers.
Exness – One of our preferred partner brokers.
XM – One of the best-rated forex brokers for trading CFDs
IG Markets – It has user-friendly trading platforms
eToro – It offers a wide range of CFD products
Forex.com – It is a low-cost CFD broker
Interactive Brokers – It works best for experienced traders
FXCM – It is an all-rounder
How we selected the best CFD trading Platforms?
Listed below are some factors that we considered while choosing the best CFD trading platforms.
We wanted to make sure that our listed brokers hold a good reputation. Therefore, we read forex broker reviews of our listed broker’s existing customers on some reputable platforms i-e Reddit, and Quora, etc. We also checked reliability scores of all our brokers with independent reviewer’s websites such as Trust Pilot.
To confirm if the listed brokers hold a valid license from their respective regulatory bodies, we checked and verified their license information with the concerned regulatory authorities.
Not all trading platforms work best for trading CFDs. Therefore, we ensured selecting the ones with all the latest trading tools and indicators needed for a practical trading experience. All trading platforms offered by our listed brokers are not only well equipped but easy to navigate around.
We also tried communicating with each of the listed brokers to check how quickly they respond to customer queries. Honestly, all of them have professional customer support staff available to answer questions and resolve your issues in time.
Can CFD brokers be Trusted?
Yes, CFD brokers can be trusted for sure. Also, suppose you have considered all the factors listed above while signing up with a CFD broker. In that case, you can rest assured that your broker will remain fair besides offering you the best prices. Also, the broker will ensure the security of your funds.